GOP seeking ideas to change Kasich's tax plan

Friday

Mar 15, 2013 at 12:01 AMMar 15, 2013 at 7:55 PM

Staring down a sales tax expansion and new drilling tax that they do not like, and left with no obvious alternatives, Republicans legislative leaders are sending out a call for help to business and community leaders. Lawmakers have heard plenty of criticisms of Gov. John Kasich's proposal to expand the sales tax to most economic activity in the state as part of his overall tax package, but have not heard many suggestions for what should replace it. House Republicans have grown increasingly opposed to the sales tax plan, but because revenue from the expansion covers much of the governor's plan to lower the income tax, they want to find a revenue generating option.

Jim Siegel, The Columbus Dispatch

Staring down a sales tax expansion and new drilling tax that they do not like, and left with no obvious alternatives, Republicans legislative leaders are sending out a call for help to business and community leaders.

Lawmakers have heard plenty of criticisms of Gov. John Kasich’s proposal to expand the sales tax to most economic activity in the state as part of his overall tax package, but have not heard many suggestions for what should replace it. House Republicans have grown increasingly opposed to the sales tax plan, but because revenue from the expansion covers much of the governor’s plan to lower the income tax, they want to find a revenue generating option.

“After extensive review of the budget in its entirety, it is our shared goal to propose a broad path forward to have meaningful discussions on the various impacts of the governor’s tax proposals,” said a joint statement issued by Speaker William G. Batchelder, R-Medina, and Senate President Keith Faber, R-Celina.

“The window for initial action in the House is rapidly narrowing. Therefore, we strongly encourage all affected parties, particularly job creators and those in the business community who would be most affected by these proposals, to share their views with members of the legislature quickly.”

Kasich’s tax plan calls for a 20 percent, across-the-board income tax cut in the next three years, an additional 50 percent tax deduction for business owners up to $750,000 in net income, and a 0.5 percent cut in the state sales tax rate to 5 percent. Those cuts would be largely offset by an increased severance tax on shale drilling, and an expansion of the sales tax to cover most economic activity in the state.

The plan also capped what county and local transit authority sales taxes could collect from the expansion, and barred local entities from passing new sales taxes for three years. That portion of the proposal has drawn fire from county commissioners.

“Just like every other piece of legislation we’ve worked on, House and Senate leaders have brought their own ideas to the table, which is not only to be expected, we encourage it,” Kasich spokesman Rob Nichols said. “It remains essential that we cut taxes and create a jobs-friendly environment here in Ohio, House and Senate leaders have agreed to continue working on a tax reform package to put into the budget, and we look forward to working with them to that end.”

Overall, Kasich said his plan would be a $1.4 billion tax cut over three years – though some studies have shown that lower income Ohioans would pay higher taxes, because they do not benefit much from the income tax cut.

GOP leaders said it is their goal to lower the income tax, simplify the tax code and commit to long-term tax reform.

Criticism of the plan has been swift and plentiful. The oil and gas industry has sharply criticized the new severance tax on fracking, and a number of GOP lawmakers agree with its position that the state should not be taxing a major industry that is trying to get off the ground in Ohio. Kasich argues the rate would still be lower than most other states.

A wide swath of business groups opposes the sales tax expansion. They argue it would make them less competitive, would double-tax a variety of goods and services, and cause confusion about exactly what would fall under the tax.

Though Kasich billed his tax overhaul as a boost to small businesses and the state economy, the state’s two major business groups, the Ohio Chamber of Commerce and the National Federation of Independent Businesses/Ohio, have not come out in support of the plan.

Kasich proposed the sales tax expansion – which would raise $3.1 billion over the two-year budget – as a way to capture more economic activity as Ohio, like the nation, continues to move more toward a service-based economy.

House GOP leaders have struggled to identify ways to fix the sales tax plan, particularly the problem with taxing a single transaction or service multiple times. One idea that has caught the attention of some lawmakers would increase the state’s commercial activities tax – a gross receipts business tax – on companies that are currently exempt from the sales tax.

Criticisms of the plan continued yesterday in a House Finance subcommittee dealing with the tax portions of the budget.

Broadcasters, newspapers, apartment owners and a logistics company joined the chorus, arguing that the expanded sales tax would cause a myriad of problems.

Expanding the sales tax to advertising sales would lead to a 6-percent drop in advertising revenue for newspapers, and put them at a competitive disadvantage with other out-of-state online outlets that would not have to pay the tax, said Christopher White, publisher of The (Canton) Repository, who represented the Ohio Newspaper Association.

“The past five years have been devastating to newspapers,” he told the House panel. “I believe that, if enacted, the advertising tax would halt the progress that we are making towards securing our future and, in fact, could jeopardize our ability to function effectively.”

Some also have questioned if the income tax cut, which would max out at about $26,000 for a business owner who earns $750,000, would provide enough money to cause small businesses to do more hiring or significant investment in their companies. The vast majority of Ohioans who earn business income employ no one, and only about 3 percent earn more than $100,000.

Rep. Jeffrey McClain, R-Upper Sandusky, chairman of the subcommittee on taxes, said after his final hearing yesterday that the panel will issue an informal report to the full Finance Committee. He asked members to submit their ideas to him today.

“We have to find out where we are and if we think we’re going to be able to resolve some of the issues,” he said. “There are a lot of issues. But we want to see if we can keep the pedal down, if we can. If we have to slow up, we will.”

McClain noted that in the past, the legislature has pulled proposals out of bills when they thought they needed more time to work them out. Last year, House Republicans pulled the severance tax proposal out of a larger package of reforms proposed by Kasich. “If we think we can’t get it to a point we’re comfortable with, I’m sure that’s going to be looked at,” McClain said.

Speaking to reporters Wednesday, Batchelder said it’s hard to know which is the least-favorite part of the governor’s budget – the sales tax expansion or the Medicaid expansion.

“Clearly there are things that are unacceptable to a lot of our caucus members, so we will be working on alternatives for those,” he said.

“The governor’s style is to prepare this thing and then send it down (to us) without legislative participation. Obviously he does not expect everybody to love everything he did.”

Asked Wednesday about the concerns with his tax plan, Kasich told reporters: “I have really not met anybody who takes issue with the fact that we need to help small business and we need to reduce tax rates. There may be some people out there that practice a different economics than I know – no-growth economics. But I have not met anybody who's involved in all this who doesn't think that these are good goals.”

Dispatch reporter Joe Vardon contributed to this story.

jsiegel@dispatch.com

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